In the US, around two-thirds of Americans own homes. Often, it’s much cheaper than paying rent. Plus, you own your own property, so it makes sense to say goodbye to renting and hello to owning.
Are you currently looking at dream properties and are close to putting an offer down on one? Then you might be looking into the logistics of owning a home, such as mortgages.
If you’re wondering about a 15-year vs 30-year mortgage, then you’re in the right place. In this article, we’ll break down the pros and cons of each so you know which one’s best for your personal situation.
In general, 15-year mortgages are better to sign up for when compared to 30-year mortgages. However, it does come with its own caveats, so let’s explore this type of mortgage further. That way, you know exactly what you’re in for if you opt for this shorter mortgage term.
Pro: You Pay Off Your Home Loan Quicker
One of the most immediate and obvious benefits you’ll see is that you’ll pay off your mortgage a lot quicker. If the thought of being in debt makes you uncomfortable and you want to get out of debt ASAP, then obviously a 15-year mortgage allows you to pay off your loan in half the time it would for a 30-year mortgage.
Con: Payment Amounts Are a Lot Higher
The downside to paying off your mortgage in half the time of a 30-year mortgage is that your monthly payments will be significantly higher. If you’re already tight on cash, then a 15-year mortgage may not be a viable option, as it may be outside of your budget.
Pro: Interest Rates Are Usually Lower
With any type of loan, you’ll have to pay interest. This is what motivates lenders, as they’ll get a bit extra back. So it’s inevitable that you’ll have to pay some amount of interest, regardless of whether you get a 15-year or 30-year loan.
However, you’ll typically find lower interest rates if you opt for the shorter term. While the difference might only be 0.5%, it can actually make a bigger impact than you think. Depending on the amount you borrow, that can be a difference of up to $100,000!
Pro: You’ll Build Equity Quicker
The quicker you pay off your loans, the faster you’ll build equity. If you’re not sure that this is your forever home, then this will enable you to sell it at an earlier date.
Even if it is your forever home, building equity quicker still has its benefits. For example, if you want to refinance your home later on, you’ll be able to do so earlier.
As you can see, a 15-year mortgage comes with many pros, as well as some cons. You might even think it’s perfect for you already, but don’t make a decision before seeing what a 30-year mortgage can offer you.
Below are some pros and cons for 30-year mortgages.
Pro: Your Monthly Payments are More Spread Out
When you look at your mortgage, your heart probably skips a beat, seeing how much money you’re borrowing at once. Maybe you’re just getting your career started, your spouse is thinking of going back to university, and you have little ones, either already in school and/or on the way.
With all the expenses that come with having a family, however are you going to afford paying back your mortgage?
If you need less financial pressure, then going with a 30-year mortgage might be ideal. You’ll be spreading out your payments across double the time as a 15-year mortgage, which means payments are more spread out and the amounts are lower.
Con: You’re Paying More Interest Over Time
While making mortgage payments over a longer period of time can be a relief to your bank account, the biggest downside to this is that you’ll be paying more interest over time. In general, the longer you have a loan unpaid, the more interest you’ll be paying, as you’ll have an outstanding balance.
Pro: Better Tax Deductions
Did you know that if you have a mortgage of under $750,000, you can use the interest you pay as a deduction? This is if you itemize your taxes.
As we mentioned above, you’re paying more interest over time if you go with a 30-year mortgage. But that can be slightly alleviated by the fact that you can have larger deductions for your taxes.
Do keep in mind that only around 30% of Americans actually itemize tax deductions, so there’s a good chance you’re not in this minority. However, if you are, then this can be a huge advantage to choosing a longer-term mortgage.
If you’re interested in looking at real-world examples after learning more about home loans, check out these Farmers Bank of Idaho mortgages. You’ll get a feel for some examples of mortgage quotes on their page.
15-Year vs 30-Year Mortgage: Choose the Right One for You
Now you know the differences when it comes to a 15-year vs 30-year mortgage. Of course, each has its own advantages and disadvantages, which means what might be right for your neighbor might not be right for you.
While 15-year mortgages have slightly more pros, it may not be feasible for every homeowner to get. So take the time to explore your options and thoroughly understand what mortgage providers are offering you. Never feel afraid to speak up and ask questions; this is a long-term commitment, after all.
With that, we wish you luck and hope you become a proud new homeowner in the near future!
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